Archived — Acquisition of ID Biomedical Corporation by GlaxoSmithKline Inc.
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June 19, 2006
Acquisition of ID Biomedical Corporation by GlaxoSmithKline Inc.This technical backgrounder summarizes the main findings of the Competition Bureau’s review of the acquisition of the ID Biomedical Corporation ("IDB") by GlaxoSmithKline Inc. ("GSK").
Readers should exercise caution in interpreting the Bureau’s assessment of this transaction. Enforcement decisions are made on a case-by-case basis and the conclusions discussed in this backgrounder are specific to this merger and are not binding on the Commissioner. The legal requirements of section 29 of the Competition Act (The "Act") and the Bureau’s policies and practices regarding the treatment of confidential information limit its ability to disclose certain information obtained during the course of a merger review.
On September 7, 2005, GSK announced it had reached an agreement to acquire IDB. The Bureau classified the proposed transaction as "complex" under its service standards. In conducting its examination, the Bureau obtained relevant information and views from Canadian federal and provincial public health officials, members of the medical community and competitors.
In November 2005, the Bureau concluded that the transaction would not likely result in a substantial prevention or lessening of competition in the vaccine industry. On December 8, 2005, GSK and IDB closed their transaction, following the receipt of all regulatory clearances and adoption of the acquisition agreement by IDB shareholders.
GSK, headquartered in the United Kingdom, is one of the world’s leading research-based pharmaceutical companies. GSK Canada is a wholly-owned subsidiary of GSK. The principal business of GSK Canada is the research and development, production and distribution of pharmaceuticals in Canada. GSK Canada offers a wide variety of vaccine products for the prevention of diseases such as hepatitis A and B, measles, mumps, rubella and typhoid fever. In the United States, GSK offers influenza vaccine as well as vaccine products for the other diseases listed above.
IDB, with its head office located in Vancouver, British Columbia, is an integrated biotechnology company dedicated to the development of innovative vaccine products. It operates from facilities in Canada and the United States in the areas of vaccine research, development, manufacturing, sales and marketing. IDB markets two vaccines in Canada: an injectable influenza vaccine and a vaccine for diseases caused by Meningococcal Group C bacteria.
Influenza Vaccines in Canada - Industry Overview
The vaccine industry in Canada is unique because of two factors. The first is the role that the Canadian federal, provincial and territorial governments play in providing some of these products. The second is the long term supply contracts related to the need to ensure security of supply for Canadians. In Canada, most influenza vaccines are provided through the publicly-funded and administered health care system. However, the private sector does have access to and does administer influenza vaccines to individuals who are not eligible to receive influenza vaccines under the publicly-funded programs. In 1976, the Conference of Deputy Ministers of Health approved a recommendation to establish a continuing program for the combined bulk purchase of drugs and vaccines. The mandate of the program was to manage, on behalf of the federal, provincial and territorial governments, an ongoing, voluntary arrangement to purchase drugs and vaccines utilizing the procurement services of the Department of Public Works and Government Services Canada (PWGSC).
Today, PWGSC, as coordinator of the Federal/Provincial Territorial (F/P/T) Group Purchasing Program for Drugs and Vaccines, orders influenza vaccines for use in public health campaigns on behalf of the F/P/T jurisdictions, pays the influenza vaccine suppliers and recovers the funds from the F/P/T jurisdictions.
The National Advisory Committee on Immunization (NACI) is a national committee of recognized experts in the fields of pediatrics, infectious diseases, immunology, medical microbiology, internal medicine and public health. The NACI reports to the Chief Public Health Officer of Canada, who heads the Public Health Agency of Canada (PHAC). One of the NACI’s functions is to recommend which vaccines should be included in immunization programs. The PHAC, created to protect the health and safety of Canadians, is responsible for disease surveillance and ensuring vaccine safety. With respect to ensuring vaccine safety, the PHAC is responsible for vaccine preventable disease surveillance, for monitoring adverse events following immunization, and, together with Health Canada, for investigating complaints arising from possible adverse events. In addition, the PHAC plays a coordinating role and assists in supply management of influenza vaccine when necessary under the National Immunization Strategy.1 Meanwhile, the Health Products and Foods Branch of Health Canada is responsible for approving vaccines, for investigating complaints arising from possible adverse events following immunization, together with the PHAC, and for managing product recalls. The provinces and territories are responsible for key decisions on coverage and distribution. In general, provincial health care programs cover high-risk populations. Ontario and Nunavut offer a universal program for influenza vaccine.
It is estimated that, prior to the acquisition, IDB supplied 75 percent of the annual public influenza vaccine requirement purchased in Canada. Aside from a change in ownership at IDB, there has been no change in the percentage of annual influenza vaccine supplied by the merged entity because GSK did not previously supply influenza vaccine in Canada. IDB continues to operate as a separate legal entity and a wholly-owned subsidiary of GSK. Post-merger, IDB still supplies 75 percent of the annual public influenza vaccine requirement purchased in Canada and Sanofi-Pasteur Ltd. supplies the remaining 25 percent. Supply of these vaccines is secured through long-term contracts with each supplier. A third manufacturer, Solvay Pharma, a Belgium-based chemical and pharmaceutical company with Canadian operations in Markham, Ontario, is approved by Health Canada to provide its influenza vaccine in Canada and will have an opportunity to compete to provide its influenza vaccine to the F/P/T jurisdictions when the supply contracts are next put to tender in 2008. A brief description of the contracts is provided below.
Relevant Product Market
The Bureau’s examination focused on influenza vaccines, IDB’s principal line of business. Vaccines are sub-dividable into several individual product categories based on their application to different diseases. Prior to acquiring IDB, GSK marketed some vaccine products in Canada but these vaccines were for other diseases listed above, not influenza.
The Bureau also examined vaccines that each company had in different stages of clinical development. Both companies had limited potential candidate vaccine products aimed at certain respiratory ailments, one Meningococcal strain and allergy. However, the Bureau found that these products are years away from being commercially viable. Finally, it found other pharmaceutical companies are in various stages of developing potential vaccines for the same diseases.
Relevant Geographic Market
The Bureau found that the relevant geographic market is national in scope, given that there is a unique regulatory approval process before any vaccine can be sold or used in Canada.
The Pandemic Contract
In September 2001, as a result of a competitive bidding process, PWGSC contracted on behalf of the F/P/T jurisdictions with Shire Biochem Inc. to develop and maintain, in Canada, a state of influenza pandemic vaccine production readiness and to provide vaccine in the event of a pandemic. Shire Biochem Inc. later sold its vaccine business to IDB in September 2004. Under the terms of this contract, Shire would develop sufficient production infrastructure to produce up to eight million doses of pandemic influenza vaccine per month. Among the conditions of the contract was the requirement that Shire would ensure a secure supply of all raw materials necessary for vaccine production. When it awarded the contract, the F/P/T jurisdictions also agreed to purchase 50 percent of the annual public requirements for influenza vaccines from Shire for the next 10 years, until 2011, in order to ensure that the company’s influenza vaccine production equipment would remain in working order and be available in the event of a pandemic. IDB assumed the terms of the pandemic contract when it acquired Shire in September 2004.
Contracts for the Supply of Annual Requirements of Influenza Vaccine
Further to the F/P/T Group Purchasing Program for Drugs and Vaccines, PWGSC, on behalf of the F/P/T jurisdictions, tendered the other 50 percent of the annual public requirements for influenza vaccine in August 2001, with Aventis Pasteur (now, Sanofi Pasteur) being the successful bidder. Aventis received a two-year supply contract.
In June 2003, a subsequent tender process resulted in PWGSC awarding two separate contracts, each of a five year duration, dividing this portion of the annual public requirements equally between Shire and Aventis. Shire had already been awarded the contract for the supply of the other 50 percent of Canada’s annual public influenza vaccine requirements, and pandemic requirements.
As a result of these contracts and the subsequent acquisitions of Shire by IDB in 2004 and IDB by GSK in 2005, IDB, as a wholly-owned subsidiary of GSK, is responsible for providing the F/P/T jurisdictions with 75 percent of the annual public influenza vaccine requirements and Sanofi Pasteur will supply the remaining 25 percent.
Summary of Competitive Situation - Influenza Vaccines
The vaccine industry is characterized by long-term contracts to ensure adequate supply. No concern was expressed by Canadian public health officials, members of the medical community and competitors that IDB could increase the price of vaccines following the merger. In fact, it was considered that the existence of the F/P/TGroup Purchasing Program for Drugs and Vaccines provides the F/P/T jurisdictions with significant countervailing power with respect to the purchase of these products. It was also expressed that the long-term nature of the pandemic contract provides IDB adequate time to maintain sufficient production capacity and availability of the raw materials necessary to allow production to begin without delay, in the event of a pandemic. Public health officials contacted by the Bureau expressed no concern that the proposed merger would affect security of supply for Canadians.
There was no product overlap in Canada between GSK and IDB. While GSK at one time had regulatory approval to sell influenza vaccine into Canada, it never actually did so prior to the merger. The Bureau found that the merger itself does not change the fact that there will effectively be no competition until the next bidding process, in 2008, for 50 percent of the annual public requirements of influenza vaccine. At that time, there are likely to be a number of pharmaceutical companies capable of bidding, in addition to IDB. The entry barriers to obtaining Canadian regulatory approval are considered to be low for any other producer that currently markets an influenza vaccine elsewhere in the world.
There will be no competition for the pandemic contract and the other 50 percent of the annual public requirements of influenza vaccine until 2011. For this portion, the F/P/T jurisdictions require the supplier to have production facilities in Canada capable of producing the necessary quantity of influenza vaccine. However, under current circumstances, there may be no competition to fulfill these requirements unless another influenza vaccine producer establishes sufficient production facilities in Canada or the local-supplier requirement is eliminated. This seems unlikely as security of supply remains a paramount concern for public health authorities.
The Bureau’s analysis also determined that the proposed transaction would not result in any substantial lessening or prevention of competition in the small private market for influenza vaccines in Canada.
The Bureau concluded that the proposed transaction would not result in any substantial lessening or prevention of competition in the vaccine market in Canada. There was no product overlap in Canada between the parties and no significant issue raised in respect of products under clinical development.
1 For more information about the PHAC, immunization and vaccines, please visit the PHAC Web site.
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